India to be fastest growing economy in 2016: UN Report

India will be the fastest-growing major economy in the world in 2016, says the United Nations’ ‘World Economic Situation and Prospects 2016’ report, launched on Friday.

The report expects the Indian economy, which accounts for over 70 per cent of South Asia’s GDP, to grow 7.3 per cent in 2016 and 7.5 per cent in 2017, up from an estimated 7.2 per cent in 2015.

South Asia is expected to be the world’s fastest-growing region in 2016 and 2017 despite challenging global conditions, it added.

On India, the UN report noted that the macroeconomic environment has improved, helped by the sharp decline in the prices of oil, metals and food.

Consumer and investor confidence has risen even as the government faces difficulties in implementing its wide-ranging reforms agenda. And some economic indicators, such as industrial production, remain volatile, the report added.

Revival of stalled projects

Asked what explained the optimism over India’s GDP growth seeing incremental improvement in the next few years, Nagesh Kumar, Head, UN-ESCAP South and South-West Asia Office, said many of the reforms that are stalled are now expected to get on track.

Moreover, the softening of global oil prices, which is the only silver lining for India, is expected to continue, especially after sanctions on Iran were lifted recently.

“Oil prices are not going to go up in the near future or medium term. With Iran coming on board, oil prices are only bound to go down and not up,” Kumar said after releasing the report in the Capital.

A recent ESCAP report had projected India’s GDP growth at 7.4 per cent for 2015-16 and 7.5 per cent for 2016-17.

Fiscal stimulus

Kumar also said that India needs to revisit its fiscal policy given the limitations of using monetary policy to spur economic growth. This is a good time for the country to increase its spend on the social sector and on employment-creation activities, even if it means “deviating” from fiscal consolidation goals for, say, a year, he said.

“I would, for the current year (2016-17), not focus on fiscal consolidation too much. Within some safe limits, the Finance Minister can go for that (deviate from the earlier set goal). The caveat is that spending should not be on the unproductive front but more on social and employment-creating sectors,” he said.